The health of non-ferrous in the Trump age

ASSOMET, the italian Association of non-ferrous metal industries, has recently dedicated an event to the presentation of a study on the performance of this product category in a time of uncertainty caused by international geopolitical tensions.

To have an idea of the weight that the customs duty war is acquiring on the international scenario of commodities and relative price lists it is sufficient to browse quickly the home page of the official site of Assomet. The association that since 1946 has represented the Italian non-ferrous metal industry has in fact published in it the news of the activation of an online monitoring service of the eventual anomalous increments in the import of aluminium from some third Countries. It is one of the side effects of the controversial application of the 232 resolution on the import limitations by United States. However, it is worth saying that the shade of the duty tariffs extends on almost the entire gigantic analysis that the association has dedicated to the performance of its reference raw materials in 2017 and to their prospects for the current year. Even if complete, the examination must necessarily be handled with the due care because, Donald Trump apart, the unknowns that burden on market and industry are manifold. If, for instance a broad part of the Assomet investigation is understandably focused on aluminium, well, it is known that in recent times the automotive world has been its voracious buyer. Nevertheless, some meetings of users held in the middle of the summer have suggested undercurrent not an alarm but certainly some subdued invitations to caution. This because, even if manufacturers keep their target of vehicle lightening intact, they seem to have partly slowed down the rate and decreased the amount of their requests. If the demand drop should continue, then doubts would multiply and would swallow up.

Aluminium astride growth and deficit

Once laid the preliminary assumptions, it is undoubted that 2017 represented for aluminium an excellent year from the point of view of the global requirements, which grew by 6% and continued its race, taking a further step forward by 5% for a use of 67.3 million tons. Increasing also the production (+5.7% in 2017 and a likely 2.8% this year) despite the capacity reduction foreseen or actually sanctioned by Chinese authorities, estimated in as many as 10 million tons. In the Country, purchases rose by 7.8 points towards the direction of 35 million tons whereas others have expectedly suffered from the exports burdened by anti-dumping provisions. The repercussions of tariffs reverberate on the rest of the planet: stocks amounted to 2.9 million tons at the end of 2017, one million less than what counted in 2016. Therefore, the requirement coverage was equivalent to just 36 days: at the end of the first 2015 semester, they were 115, according to Assomet. The overall outline favoured an upsurge (+22.7%) of prices at the London Metal Exchange, where at the beginning of this year they stopped at 2,256 dollars per ton. Shortage of stocks and limits to the Chinese production were some of the factors that, in the opinion of the association, have contributed in pegging them, restoring the threshold of 2,200 dollars in summer. Among Asian giants, India’s demand travelled at full rate: +5.6% in 2017, corresponding to 2.1 million tons. Sheet metals and building industry have balanced in North America the appetite decrease of four-wheel vehicles. While a rosy future is expected for extruded components, Assomet has highlighted how the use of primary aluminium has developed satisfactorily, scoring +2.6% per 6.8 million tons. The report focused also on Russia (where the situation of Rusal is critical just owing to the tensions with the States) surveying in it the 10.9% demand growth. Finally, driven by Germany, Italy and France, the Eurozone was protagonist of a remarkable boom that has led the manufacturing Purchasing managers index to its peaks. The aluminium business caught on and automotive was one of its boosts. If we include also Turkey, the demand accounted for 9.4 million tons (+3.4%).

The adverse balance of copper

In its report, Assomet has foreseen for 2018 a possible situation of surplus for copper (40,000 tons), mentioning the International Copper Study Group and reminding that instead in 2017 the market was in deficit by around 150,000 tons. According to analysts, this braking is due to some important supply interruptions in Chile and Indonesia, among other factors; besides, to the absence of new extraction projects of some relevance. After +1% scored last year, the refined copper is expected at +2.7% and the broad scrap availability has driven to +4% the activities linked with the secondary sector. Assomet judges prices as «in tension» and forecasts «a prolonged deficit», contextual to a demand increase influenced also by the liveliness, exceeding the expectations, of the electric vehicle industry. In the last three months of the year, copper has set its price records in the last four years, with 7,313 dollars per ton (+30% versus 2016). The annual LME average was by 6,170 dollars, with the 27% increment compared to the previous year, the three-month one was of 6,194 dollars. According to Assomet, both quotations were affected by the weakness of the American currency, summed to the instead positive trend of the Chinese economy. Other international institutes have foreseen for the red gold about 3%-lower prices than what expected in the third and fourth quarter of 2018. However, basically, due also to the specificities of the commodity, a rebound and a positioning beyond the threshold of 7,000 dollars (even 7,600 in the opinion of some) are deemed likely. Infrastructures catalyse the copper demand everywhere and especially in China and in India. In particular, Assomet has analysed the rising hunger for copper for electric uses that the Dragon goes on showing. In 2017, in Beijing they produced 136 million conditioning plants and about one third of them integrates 5-millimetre copper heat exchangers versus the minority percentage of aluminium components. Concerning the year in course, the purchases of raw materials in the Popular Republic should slightly decrease, hindered by the weakness of railway (-8.6% already in 2017) and of the building panorama. A recovery is expected by Russia, United States and Brazil.

Lead: the extraction drops, the refined production grows

Geopolitical factors have influenced the behaviour of the mining lead production, contributing in the further productive decrease by 0.9%, mirroring the -22.2% registered in Australia; by 10.4% in USA and still by 0.9% in the Popular Republic of China. The production of refined lead instead grew (+0.7% in 2017), driven by Canada, Europe, Kazakhstan, China and India. However, in 2017, the demand exceeded the overall offer by about 165,000 tons and, even if with different proportions, the trend should continue this year, too, with an estimated deficit of 17,000 tons. Rising also the production of secondary lead, then mainly derived from the recycling of worn-out batteries, even if by just slightly more than one point, from 58.5 to 59.8%; and the total use. The latter item rose by 2.3% mainly in virtue of the +3.1% stored in China and of the data coming from Japan, South Korea and United States. For a metal, lead, often considered even too calm and stable, price dynamics were almost frantic. In 2017, cash and three-month values of the London Stock Exchange jumped respectively from 2,007 to 2,495 and from 2,002 to 2,502 dollars per ton, achieving an average of 2,317 and 2,327 dollars. In the wake of the forecasts of a further improvement of the Chinese demand, the impression of Assomet is that prices might remain relatively high for the entire 2018. Elsewhere they have instead feared their downturn towards the base of 2,200 dollars. A significant +5.1%, after the 1.1% attained in 2017,is what Assomet expected from the zinc production in 2018, also thanks to +33.7% of output granted by Indian sites. The demand-offer deficit of last year grazed instead 495,000 tons: in 2018, the spread is likely to be lower and fluctuate in the area of 260,000 tons. Consumptions have strengthened everywhere (+2.6%) with the exception of Europe (-0.5%); but in 2018 we are living a rally that mainly concerns the European and United States industry, precisely. LME cash and three-month prices gained 38.2 and 37.6% respectively last year. Notwithstanding the possibility that the made in USA protectionist measures can struck also the main global suppliers of this commodity, nickel has experienced and is still living a time of consolidation of the demand, estimated by +4% for the entire 2018. Owing to a deficit between demand and offer, cash prices of the London Metal Exchange rose by 8.4% compared with 2016, reaching 10,400 dollars per product ton. At the beginning of the current year, they reached the maximum values since 2015, i.e. 13,200 dollars.

italian-STYLE Commodity

In its overview on the trend of the production and of the market of raw materials, Assomet has opportunely dedicated broad spaces to the Italian situation. Therefore, it was possible to notice that total aluminium uses in the Country grew by 4.5% (2.136 million tons) in 2017 and that in detail plates and billets registered consumptions rising by 3%, slightly under 1,150,000 tons. The extruded production overcame 607,000 tons, with an increment approaching 10%. Foundry castings grew instead by 5% (754,800 tons mainly due to pressure castings). Concerning copper, the representative association of non-ferrous has estimated the 6.6% increase of uses, 635,000 tons of which 634,000 imported. In productions, rolled sections grew by 11% (25,000 tons), bars and steel structural works (13,300 tons) by 8%. The brass bar as well, continuing a trend already started two years ago, scored the 5.9% exploit, with a peak of 540,000 tons. With their +1.4%, foundry castings have recovered after three negative years, almost reaching 60,000 tons. The use of refined lead was affected by the 1% decrease while the production of secondary materials appeared healthier. Stable both the production (25,000 tons) of semi-finished parts and the lead consumption for accumulators (204,000) whereas a positive steering involved both imports (+11.7%) and exports (+1.2). The use of zinc collapsed (-10%) in 2017 owing to the decreased use of minerals as secondary materials, and because of the import-export dynamics stagnation. On the contrary, the output of castings improved by 23%, landing at 90,000 total tons.